Coinbase Bitcoin Self-Directed Solo 401k Investment

A self-directed solo 401k from My Solo 401k Financial may be invested in bitcoin / cryptocurrency using Coinbase, and many of our clients have been making investments in bitcoin using Coinbase since 2014 when the IRS deemed cryptocurrency property.

What is Cryptocurrency?

Per IRS Revenue Ruling 2019-24:

Virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value.
Cryptocurrency is a type of virtual currency that uses cryptography to secure transactions that are digitally recorded on a distributed ledger, such as a blockchain.

IRS View on Taxation of Cryptocurrency

Steps to Invest Self-Directed Solo 401k Funds Using Coinbase

STEP 1 – Open a Solo 401k

Confirm that you are eligible (self-employed w/ no full-time W2 employees)
IRS-approved plan that allows for cryptocurrency investments & provider with experience in helping others invest

STEP 2 – Fund the Solo 401k

Open a bank account in the name & EIN of the Solo 401k
Rollover Former employer plan or non-Roth IRA funds and/or make 401k contributions

STEP 3 – Open & Fund Account at Cryptocurrency Exchange

Open a Cryptocurrency Exchange Account in the name & EIN of the Solo 401k
Link the solo 401k bank account to the Coinbase account

STEP 4 – Store Cryptocurrency

Separate and segregated wallet exclusively for Solo 401k investments
Store in safety deposit box associated with Solo 401k bank account

Solo 401k Bank Account for Cryptocurrency Funding QUESTION

I have already opened up an account at Coinbase in the name of the solo 401k trust. So I have to move the funds from the Schwab brokerage account for the self-directed solo 401k that you helped me to open to a bank account that is in the name of the solo 401k trust and then transfer those funds to the Coinbase solo 401k account? Are there any tax implications?

Correct that you need to open a bank account in the name of the solo 401k plan. You can then move applicable funds from the solo 401k Schwab brokerage account that we assisted in opening to the solo 401k bank account. Given the cryptocurrency exchange requirements, you will need to fund the account at the exchange with funds from a bank account in the name of the Solo 401k. The solo 401k bank account is generally linked to the cryptocurrency account that is titled in the name of the solo 401k plan.

Use My Personal Account for Cryptocurrency/Bitcoin Account QUESTION

I am wondering about companies that don't support Trust accounts. Can I open the bitcoin/crypto account under my name instead of the solo 401k trust? Am I allowed to use them under my identity using funds only from the Solo 401K

This confirms that the accounts at the cryptocurrency exchange must be under the name and employer identification number of the solo 401k.

You cannot open an account under your name and Social Security number and deposit and/or hold solo 401k funds as this would constitute a taxable distribution.

Moreover, the cryptocurrency exchanges are now required to report account activity to the IRS with respect to the tax identification number on the account so this means that the exchange would report the activity under your Social Security number such that the IRS would expect you to report the same activity on your personal tax return (which would not be correct if the activity relates to your solo 401k funds).